What is Equity?

Home equity is the amount of your home that you actually own. Specifically, equity is the difference between what your home is worth and what you owe your lender. As you continue making payments on your mortgage, you reduce your principal – the balance of your loan – and you build equity. Once you have enough equity built up, you can access it by taking out a home equity loan, a home equity line of credit (HELOC), or by using a cash-out refinance. If you still have a remaining balance on your mortgage, you only own the percentage of your home that you’ve paid off. Your mortgage lender owns the rest until you pay off your loan.

For example, let’s say you buy a home worth $200,000 with a 20% down payment of $40,000. In this case, you would have $40,000 of equity in your home as soon as you close. With every mortgage payment you make, the balance of your loan decreases, and you build more and more equity (assuming your home value doesn’t decline). When your mortgage is 100% paid off, you have 100% equity in your home. Equity is the silent benefactor that every homeowner looks forward to, and recent trends have shown that equity has burgeoned, especially during the ‘unicorn’ years. The Equity Insights Report by CoreLogic reveals an astonishing figure: the average homeowner now boasts equity exceeding $274,000. 

The pandemic may have presented its set of challenges, but as Bankrate puts it, for homeowners, the substantial equity gain was a silver lining. It's crucial, however, to understand how this equity operates and the ways it can be leveraged. Gold Financial Services sheds light on four pivotal strategies: 

 
1. **Upgrading or Downsizing**: If your existing home isn't in alignment with your needs, consider relocating. The equity you've amassed can substantially cushion your down payment, whether you're moving to a larger property or considering a cozier space. Professional advice can give clarity on how to efficiently use this equity in your home-buying journey. 

2. **Reinvigorate Your Space**: If you're not ready to move but crave change, renovations can be your answer. Tailor your home to reflect your style, but always keep an eye on how specific improvements can uplift your home's market value. For insights on profitable home improvements, consult a real estate professional. 

3. **Chase Your Dreams**: Your accumulated home equity can act as a powerful enabler, helping you delve into new business opportunities, secure your retirement, or even support educational pursuits. The key lies in spending this equity judiciously. 

4. **Safeguard Against Foreclosures**: The current foreclosure landscape may seem calm, but it's essential to be prepared. If financial hurdles arise, understanding how your equity can be a safety net becomes vital. As articulated by Freddie Mac, if circumstances dictate selling your home, your equity might just be your saving grace. 

Here's the Bottom Line:

Equity isn't just about numbers; it's a potent tool that can redefine your future, help you achieve dreams, and provide a buffer in uncertain times. Unsure about your equity standing? Reach out to Gold Financial Services to chart out your next move.